Liquidity: Under pressure Liquidity is likely to be under less pressure in the early part of the week. However, it could become tight towards the end following the preparation for advance tax payments by December 15.
The fresh inflow of foreign funds into Indian equity markets could see an improvement in liquidity. On Monday, the call rate is expected to open at 7.75-8.00 per cent as demand will resurface on prevailing tight liquidity.
However, the inter-bank rate is not expected to rise above 8 per cent.
Keeping the tight liquidity condition in mind, the Reserve Bank of India (RBI) did not resort to the mop-up of Rs 2,500 crore, the portion of the Market Stabilisation Scheme (MSS) under the treasury bills auction to contain excess liquidity.
The payment towards six state loan tenders (about Rs 5,200 crore) is not likely to lead to a spike in the call rate. The outgo for advance taxes is pegged between Rs 32,000 crore and Rs 35,000 crore.
RBI is expected to infuse around Rs 3,000 crore through the repo route on Monday compared with Rs 1,320 crore on Friday. CBLOs are seen around 7.80 per cent.
G-Sec: May rise The government bond (G-sec) prices are likely to extend gains on Monday as the buying sentiment may continue on hopes of liquidity easing slightly. The absence of bond auction announcement is also likely to spur sentiment.
Bonds could extend gains because traders may continue buying on expectations of easing liquidity. RBI has announced its weekly auctions of treasury bills worth Rs 4,000 crore, including Rs 2,500 crore for the MSS portion, for next week, which may not be used in times when funds are under pressure.
Forex: Re buoyant The rupee is expected to appreciate against the dollar in the coming week on likely overseas capital flows into the domestic capital market, declining crude oil prices and expectation of cut in rate by the US Federal Reserve.
Unlike this week, where we saw the rupee depreciating against the greenback, the rupee may move up slightly as overseas funds bring dollars for equity investments.
The intervention by RBI and selling of stocks by foreign investors had put some brake on the rupee appreciation. The Indian currency is expected to trade in the range of Rs 39.35-75 to a dollar, according to a dealer of public sector bank.
The dip in crude oil prices from the level close to $100 a barrel has the potential to bring some relief to the US economy, whose level of energy consumption is high.
The indication by Fed chief Bernanke about chances of further rate cut to stem slowdown in the economy battered by the sub-prime crisis would also play out on the global reserve currency.
Such a decision (downward revision in rate) may actually see a mild rally in the dollar price unlike the usual weakening of the currency when the key rate is cut as the market has factored in all the negative information about the economy.
The stance of the Bank of England and the Europan Central Bank on rates will also be revealed this week.